The Selmer Co. v. Timothy Rinn

• Decision Date: 13 July 2010
• Docket Number: No. 2009AP1353.,2009AP1353.
• Parties: The SELMER COMPANY, Petitioner-Respondent, v. Timothy RINN and Ganther Construction, Inc., Respondents-Appellants.
• Court: Wisconsin Court of Appeals

328 Wis.2d 263

789 N.W.2d 621

2010 WI App 106

The SELMER COMPANY, Petitioner-Respondent,

v.Timothy RINN and Ganther Construction, Inc., Respondents-Appellants. ^†

No. 2009AP1353.

Court of Appeals of Wisconsin.

Submitted on Briefs June 8, 2010.

Opinion Filed July 13, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

On behalf of the respondents-appellants, the cause was submitted on the briefs of Charles J. Hertel and Daniel J. Posanski of Dempsey, Williamson, Kelly & Hertel, LLP, Oshkosh.

On behalf of the petitioner-respondent, the cause was submitted on the brief of William E. McCardell, Mindy J. Rowland and Sara E. Spiering of DeWitt Ross & Stevens S.C., Madison.

Before HOOVER, P.J., PETERSON and BRUNNER, JJ.

BRUNNER, J.

¶ 1 Timothy Rinn and Ganther Construction, Inc. (Ganther), appeal from a judgment awarding The Selmer Company damages for breach of a covenant not to compete contained in a stock option agreement Rinn signed while employed with Selmer. Rinn and Ganther argue: (1) the covenant is an unreasonable trade restraint and invalid under Wis. Stat. § 103.465; (2) Selmer failed to prove its damages by a reasonable certainty and with credible evidence; (3) the circuit court erred when finding Rinn in contempt for violating a preliminary injunction because the injunction's scope exceeded that of the restrictive covenant; and (4) the circuit court erred in dismissing Rinn's counterclaim for unpaid commissions as a sanction for discovery abuses. ¹

¶ 2 We conclude the agreement's restrictive covenant is not subject to the exacting scrutiny demanded by Wis. Stat. § 103.465, but must instead be evaluated according to the common law's rule of reason. We further determine the covenant is a reasonable restriction necessary for Selmer's protection and is not unnecessarily oppressive or injurious to the public. We also conclude the circuit court's damage findings are supported by sufficient evidence, and the circuit court properly exercised its discretion when crafting injunctive relief and sanctioning Rinn. Accordingly, we affirm.

BACKGROUND

¶ 3 Selmer is a full-service contractor, construction manager, design-builder and industrial services firm. Rinn began working for Selmer as a salesperson, but was soon promoted to director of business development. Between 1997 and 2007, Rinn was employed as Selmer's vice president of sales and marketing. Rinn served as the liaison between Selmer and its customers, with whom he developed close relationships. In this role, Rinn was the “face” of the company.

¶ 4 During Rinn's employment, Selmer gave key employees the opportunity to purchase stock in Selmer's parent company, A.F. International, at a reduced price. Rinn was among the employees to whom Selmer offered stock options. The stock option agreement included the following nonsolicitation and confidentiality provisions:

(a) The Employee agrees that he/she shall not, at any time during [employment with the Company and for one year following termination,] directly or indirectly, as proprietor, officer, employee, partner, stockholder, consultant, owner, or otherwise:

(i) Contact, solicit, divert, or attempt to divert, any business from the Company or contact, solicit or entice, or attempt to contact, solicit or entice, any past, present, or future Customer of the Company or any person with whom the Company is conducting negotiations, or to whom the Company has submitted a bid so as to cause, or attempt to cause, any of said Customers or persons not to do business with the Company or to purchase products or services sold by the Company from any source other than the Company....

(d) Nondisclosure of Confidential Information. Employee shall not at any time disclose any Confidential Information to anyone [except as required in the ordinary course of the Company's business]. ²

Rinn signed the agreement on February 17, 2000, and in December of that year purchased eight shares of A.F. International stock for $3,287.76. Rinn was not forced to accept the offer, and his refusal would not have affected his employment in any way.

¶ 5 On August 29, 2007, Rinn notified Selmer he was ending his employment. Prior to his departure in mid-September, Rinn provided a list of “Hot Prospects,” which represented those projects most likely to occur. Rinn also initiated employment negotiations with Ganther, another full-service contractor. Ganther offered Rinn a job as its director of business development on September 11, 2007. Rinn accepted and began work on October 1. He sold his A.F. International shares in December of 2007 for $13,761.33.

¶ 6 In his first month working for Ganther, Rinn sent at least a dozen letters and made several telephone calls to Selmer's former and prospective customers. Rinn told each he had left Selmer and was working with Ganther. He remained on the boards of directors of Selmer customers, including the Children's Museum and Meyer Theater in Green Bay. Some Selmer customers, including the Children's Museum, withdrew projects from Selmer and awarded them to Ganther. Before hiring Rinn, Ganther did little business in the Green Bay area; it now directly competes with Selmer.

¶ 7 Selmer sued Rinn and Ganther on February 11, 2008, seeking injunctive relief and compensatory damages. Rinn counterclaimed for unpaid commissions.

¶ 8 At a preliminary injunction hearing on February 18, 2008, Rinn argued the restrictive covenant contained in the stock option agreement was an overly broad and unenforceable restraint under Wis. Stat. § 103.465. The circuit court disagreed, finding no disparity in bargaining power between the parties:

But here the more I've ... reviewed [the contract], those rationale[s] that the legislature used to make an exception to the rule [that] contracts made by competent adults are enforceable, they didn't exist here. I mean the parties that entered this contract were competent adults, and there was no uneven bargaining power. And actually ... Mr. Rinn benefited. He bought stock for less than what he ultimately sold it for. He received a benefit, but he gave away something to get that benefit.

.... In any event, none of the rationale[s] for the exception to throw out covenants not to compete in [Wis. Stat. § ] 103.465 are here when you look at this stock option agreement.

The circuit court enjoined Rinn, essentially adopting the stock option agreement's confidentiality and noncompetition provisions in the injunction. Rinn was prohibited from disclosing any confidential information obtained while working for Selmer. In addition, he was barred from contacting, soliciting, or attempting to divert business from “those customers or prospects with which Selmer is conducting or has conducted negotiations or to which Selmer has submitted a bid.” At the close of the injunction hearing, the court confirmed this prohibition required Rinn to step down from the boards of former or potential Selmer customers.

¶ 9 Despite the injunction, Rinn continued contacting Selmer customers and did not resign his position on the board of the Children's Museum. ³ On September 19, 2008, Selmer sought a contempt order as further relief for Rinn's continuing violation of the injunction. Selmer provided Rinn's deposition testimony in which he indicated that as of August 13, 2008, he had not even read the injunction. Benjamin Ganther, Ganther's owner and president, similarly indicated that although he was aware of the injunction's restrictions, he was not certain he read it and felt the circuit court's decision “ignored [twenty] years of case law....” ⁴ The circuit court granted the contempt motion and awarded Selmer attorney fees and costs incurred between February 18, 2008, and October 15, 2009.

¶ 10 Throughout the summer of 2008, Rinn and Ganther also stymied Selmer's attempts to obtain discovery materials, prompting several motions to compel.

Despite Selmer's repeated reminders, Rinn and Ganther failed to timely respond to discovery requests and refused to appear at scheduled depositions on June 2, 2008. ⁵ Consequently, Selmer filed its first motion to compel on May 30, 2008. At a June 23, 2008, hearing, the circuit court ordered Rinn and Ganther to sufficiently respond to the discovery requests by 5:00 p.m. the next day, warning that failure to do so could result in “additional sanctions ... including granting to Selmer all of the relief requested in its [complaint].”

¶ 11 On June 24, 2008, Rinn and Ganther provided incomplete responses to Selmer's discovery requests. Rinn and Benjamin Ganther were deposed on August 13, 2008, at which time Selmer discovered the June 24 responses omitted key information involving Rinn's communications with former and prospective Selmer customers. Following the depositions, Selmer notified Rinn and Ganther of the discovery deficiencies and requested they supplement their answers to avoid a second motion to compel. Neither Rinn nor Ganther responded.

¶ 12 Selmer filed a second motion to compel on August 28, 2008, which the circuit court granted. The court noted it had “warned the defendants that continued indifference to discovery requests would not be tolerated” and that Rinn and Ganther “have again forced the plaintiffs to file a motion to compel and on the eve of the scheduled motion hearing, provided the requested documentation.” Satisfied lesser sanctions would do nothing to stem Rinn and Ganther's discovery abuse, the court dismissed Rinn's counterclaim.

¶ 13 A two-day trial commenced on February 17, 2009. The circuit court reiterated its earlier conclusion that Wis. Stat. § 103.465 did not apply to the restrictive covenant, and found the injunction's restrictions reasonable. Selmer was awarded damages for lost goodwill stemming from Rinn's breach and Ganther's tortious interference with Selmer's contractual relationships. In addition, the circuit court found both liable for tortious interference with Selmer's business expectancy. It also determined Selmer's...